Liquid Collective's Slashing Coverage Program

• Overview
• Covered Events
• Program Waterfall
• Example Scenarios
• Nexus Mutual Slashing Coverage
• Slashing Coverage Treasury
• Node Operator Commitment

With the rise of institutional participation in staking, slashing coverage is a risk mitigation consideration for enterprises and institutions. Liquid Collective's Slashing Coverage Program provides web3-native slashing coverage to every participant staking through the Liquid Collective protocol. The program covers both network-wide events — such as network outages — and node operator failures.

Overview: 3 layers of slashing coverage

1. Nexus Mutual Coverage
   Nexus Mutual is the leading provider of decentralized crypto-native protection, having secured billions of dollars in value held in smart contracts. Nexus Mutual’s bespoke Slashing Coverage for Liquid Collective is fully scalable coverage that dynamically adjusts with the protocol's assets on platform (“AoP”) and provides access to Nexus Mutual's slashing coverage directly from a user's custody account at platforms such as Coinbase.
2. Slashing Coverage Treasury
   Liquid Collective’s Slashing Coverage Treasury allocates a percentage of all network rewards to pay slashing coverage deductibles on network-wide slashing incidents. The Treasury continues to accrue network rewards unless deployed. Read more
3. Node Operator Commitment
   Node operators supporting Liquid Collective's active set provide coverage for deductibles, up to a cap, against slashing incidents and missed rewards incurred due to the fault of their infrastructure. Read more

Node operator & network-wide events

Slashing incidents may result from a node operator's specific fault/inaction as well as from network-wide events broadly (e.g., client bug, natural disaster). Liquid Collective's Slashing Coverage Program is designed to mitigate the impact of both types of incidents. Nexus Mutual provides dynamic umbrella coverage up to $5M per incident, and the deductible is assigned between the Node Operator Commitment and the Slashing Coverage Treasury, depending on the cause of the incident. Deductibles will be paid by either the responsible node operator or the Slashing Coverage Treasury.

Program waterfall

Example scenarios

1. In the case of a network-wide slashable event, e.g., a client bug or global outage:

• Because this was a network-wide event, and did not result due to the fault/inaction of any specific Node Operator, the policy deductible is paid from the Slashing Coverage Treasury.
• The Nexus Mutual coverage then reimburses the remaining loss, up to the policy limit of $5,000,000.

2. In the case of a node operator slashable event, e.g., a misconfiguration in validator infrastructure that leads to a loss for the validators operated by a single Node Operator:

• The Node Operator fulfills their Node Operator Commitment and contributes to the coverage deductible.
• The Nexus Mutual coverage reimburses the remaining coverage in excess of the deductible, up to the $5,000,000 coverage limit.

In either case, when a deductible or claim is reimbursed, the reimbursed ETH is deposited to the protocol without minting LsETH. Another benefit of the cToken model is that users' LsETH is not slashed. Instead, the LsETH Conversion Rate programmatically adjusts to reflect the underlying ETH deposits (e.g., the LsETH conversion rate may weaken if a slashing incident occurs, but conversely strengthen when the protocol accepts a reimbursement deposit).




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In-depth: Liquid Collective's Slashing Coverage

1. What is Nexus Mutual's decentralized slashing coverage for Liquid Collective?

Nexus Mutual collaborated closely with representatives from the Liquid Collective to provide third-party, decentralized slashing coverage for the Liquid Collective protocol.

• The Nexus Mutual coverage for Liquid Collective provides umbrella coverage up to $5,000,000 in slashing losses in excess of coverage deductibles. The policy’s deductible is calculated based on the protocol’s total TVL.
• Nexus Mutual coverage details as well as definitions around the exclusion-free policy can be found in Nexus Mutual's Slashing Coverage.



Secure by design. Transparent by nature.

• Nexus Mutual is fully transparent. Everything is onchain, which means all information can be accessed and audited at any time. Anyone can review the active coverage, capitalization levels, and other data and analytics in Nexus Tracker.



Collaboratively defined.

• Experts from the Liquid Collective and Nexus Mutual worked together to create this comprehensive coverage. Liquid Collective worked with leadership at Nexus Mutual to design a bespoke slashing coverage. By collaborating together, we were able to produce dynamic coverage that scales with the Liquid Collective's needs and provides the flexibility needed for the protocol's active set to continue to expand over time.




2. What is Liquid Collective's Slashing Coverage Treasury?

A percentage of total network rewards generated is allocated to Liquid Collective's Slashing Coverage Treasury

• Liquid Collective's Slashing Coverage Treasury collects a fixed 0.30% of network rewards and continues to accrue network rewards unless deployed. This model ensures that coverage dynamically scales with the growth of Liquid Collective's AoP.
• The Slashing Coverage Treasury will begin accruing network rewards when the protocol launches. It is utilized to cover Nexus Mutual coverage deductibles on network-wide slashing events and may provide additional coverage on slashing incidents in excess of Nexus Mutual coverage maximums or non-covered events.




3. What is the Node Operator Commitment?

Liquid Collective requires that node operators supporting the protocol's active set collectively provide up to 0.30% of the protocol's AoP in coverage, up to a maximum of $5.0 million per node operator.

• Node Operator commitments are utilized to cover Nexus Mutual coverage deductibles on slashing incidents caused by a Node Operator's infrastructure or setup.
• Node Operator commitments are computed as (Liquid Collective AoP x 0.30% x Node Operator's pro-rata share of funded validators) with a maximum of $5.0 million per Node Operator.
• Node Operator commitments will begin when the protocol launches. The commitments will continue to be recalculated as Liquid Collective increases AoP.




Liquid Collective Litepaper
Learn about the growth of liquid staking, Liquid Collective, the protocol's features and more in our comprehensive Litepaper.
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Footnotes

1. Types of coverage and amounts may be reevaluated from time to time at the discretion of the Liquid Foundation. ↩